Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Hershey Co., economic profit calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 1,821,868 – 9.15% × 8,759,552 = 1,019,994
Between 2018 and 2022, a consistent trend of value creation is evident, as economic profit remained positive throughout the entire period. Despite a temporary contraction in 2019, the subsequent years demonstrate a strong recovery and expansion in the total economic value added, indicating that returns on invested capital have consistently exceeded the company's cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited an overall upward trajectory, rising from 1,303,042 thousand dollars in 2018 to 1,821,868 thousand dollars in 2022. With the exception of a marginal decrease in 2019, the steady growth in NOPAT reflects an increasing capacity to generate operational earnings from the core business activities.
- Invested Capital and Cost of Capital
- Invested capital grew steadily from 6,545,593 thousand dollars in 2018 to 8,759,552 thousand dollars in 2022, representing a significant expansion of the asset base. During this same period, the cost of capital remained relatively stable, fluctuating within a narrow range between 8.57% and 9.15%. The increase in invested capital suggests ongoing investment in growth or operational infrastructure.
- Economic Profit Performance
- Economic profit increased from 742,228 thousand dollars in 2018 to 1,019,994 thousand dollars by 2022. A temporary decline occurred in 2019, falling to 645,408 thousand dollars, which corresponds with the dip in NOPAT. The subsequent acceleration from 2020 onwards indicates that the growth in operational profitability has outpaced the rising cost of the expanded capital base, leading to a substantial increase in absolute economic value created for shareholders.
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Net Operating Profit after Taxes (NOPAT)
Hershey Co., NOPAT calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for doubtful accounts, anticipated discounts and write-offs of uncollectible accounts receivable.
3 Addition of increase (decrease) in LIFO reserve. See details »
4 Addition of increase (decrease) in equity equivalents to net income attributable to The Hershey Company.
5 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 326,636 × 3.20% = 10,452
6 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 150,547 × 21.00% = 31,615
7 Addition of after taxes interest expense to net income attributable to The Hershey Company.
8 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 2,538 × 21.00% = 533
9 Elimination of after taxes investment income.
- Net income attributable to The Hershey Company
- Over the five-year period, net income exhibited a generally upward trend. Starting at approximately 1.18 billion US dollars in 2018, it experienced a slight decline in 2019 to about 1.15 billion US dollars. However, the subsequent years show consistent growth, with net income increasing to roughly 1.28 billion in 2020, then to approximately 1.48 billion in 2021, and reaching about 1.64 billion by 2022. This reflects a steady improvement in profitability over the latter part of the period.
- Net operating profit after taxes (NOPAT)
- NOPAT followed a trend similar to that of net income, beginning at around 1.30 billion US dollars in 2018. There was a dip in 2019 to approximately 1.24 billion, followed by a continuous increase in the following years. In 2020, NOPAT rose to about 1.43 billion, then to roughly 1.60 billion in 2021, and further up to approximately 1.82 billion by 2022. The growth trajectory suggests improvements in operating efficiency and tax management resulting in higher operating profitability.
- Overall insights
- Both net income and NOPAT demonstrate resilience and growth after a modest decline in 2019. The upward trends from 2020 to 2022 indicate enhanced financial performance, with operating profits expanding at a slightly faster pace compared to net income. This may signify effective operational strategies and favorable market conditions contributing to increased earnings and operational efficiency.
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Cash Operating Taxes
Hershey Co., cash operating taxes calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
The analysis of the annual financial data reveals distinct trends in the company's tax-related expenses over the five-year period ending December 31, 2022.
- Provision for Income Taxes
- The provision for income taxes exhibited fluctuations, starting at $239,010 thousand in 2018, then slightly decreasing to $234,032 thousand in 2019, followed by a further decline to $219,584 thousand in 2020. In 2021, there was a sharp increase to $314,405 thousand, representing the highest value in the observed timeframe. This increase, however, moderated in 2022, with the provision decreasing to $272,254 thousand, remaining higher than the values prior to 2021 but lower than the 2021 peak.
- Cash Operating Taxes
- Cash operating taxes demonstrated a similar pattern. Starting at $233,444 thousand in 2018, these taxes increased notably to $281,073 thousand in 2019, then declined to $225,816 thousand in 2020. A significant rise occurred in 2021, reaching $330,049 thousand, which was the highest during the period. This trend reversed in 2022 with a decrease to $266,447 thousand, yet the value was still above the amounts recorded for 2018 and 2020.
Overall, both provision for income taxes and cash operating taxes show a comparable trajectory with a moderate decline up to 2020, followed by a pronounced increase in 2021, and a partial reduction in 2022. The peak in 2021 for both items suggests either increased taxable income or changes in tax rates or policies impacting the tax expenses distinctly during that year. The reduction in 2022 indicates some relief but still reflects a relatively higher tax burden than in the years prior to 2021.
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Invested Capital
Hershey Co., invested capital calculation (financing approach)
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of LIFO reserve. See details »
5 Addition of equity equivalents to total The Hershey Company stockholders’ equity.
6 Removal of accumulated other comprehensive income.
7 Subtraction of construction in progress.
The financial data reveals several key trends over the five-year period ending in 2022. There is a general increase in total reported debt and leases, equity, and invested capital, which provides insight into the company's capital structure evolution and growth dynamics.
- Total Reported Debt & Leases
- The total reported debt and leases initially decreased from 4,683,658 thousand US dollars in 2018 to 4,479,857 thousand US dollars in 2019. Subsequently, it increased to 5,376,085 thousand US dollars by 2021, before slightly declining to 5,117,981 thousand US dollars in 2022. This indicates a modest fluctuation with an overall upward movement in debt and lease obligations over the observed period.
- Total Stockholders’ Equity
- The stockholders’ equity displayed a steady and robust growth trend throughout the five years. It more than doubled, rising from 1,398,721 thousand US dollars in 2018 to 3,299,544 thousand US dollars in 2022. This consistent increase suggests ongoing retained earnings and possibly additional capital contributions, contributing to strengthening the company's net asset base.
- Invested Capital
- Invested capital exhibited an upward trajectory across the period, increasing from 6,545,593 thousand US dollars in 2018 to 8,759,552 thousand US dollars in 2022. The growth was consistent year-over-year, indicating a steady expansion in the resources committed to the company's operations, funded by both debt and equity.
Overall, the company’s financial structure appears to have been progressively strengthened through increased equity and incremental invested capital. While total debt and leases showed some variability, the level remained elevated at the end of the period relative to the beginning, which alongside rising equity, suggests a balanced approach to financing growth and operations. The increasing invested capital underscores an expanding asset base supporting the business activities.
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Cost of Capital
Hershey Co., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 49,109,414) | 49,109,414) | ÷ | 53,733,350) | = | 0.91 | 0.91 | × | 9.79% | = | 8.94% | ||
| Debt3 | 4,297,300) | 4,297,300) | ÷ | 53,733,350) | = | 0.08 | 0.08 | × | 3.07% × (1 – 21.00%) | = | 0.19% | ||
| Operating lease liability4 | 326,636) | 326,636) | ÷ | 53,733,350) | = | 0.01 | 0.01 | × | 3.20% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 53,733,350) | 1.00 | 9.15% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 41,579,947) | 41,579,947) | ÷ | 47,143,709) | = | 0.88 | 0.88 | × | 9.79% | = | 8.63% | ||
| Debt3 | 5,216,571) | 5,216,571) | ÷ | 47,143,709) | = | 0.11 | 0.11 | × | 2.35% × (1 – 21.00%) | = | 0.21% | ||
| Operating lease liability4 | 347,191) | 347,191) | ÷ | 47,143,709) | = | 0.01 | 0.01 | × | 3.10% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 47,143,709) | 1.00 | 8.86% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 31,342,075) | 31,342,075) | ÷ | 36,557,279) | = | 0.86 | 0.86 | × | 9.79% | = | 8.39% | ||
| Debt3 | 4,996,755) | 4,996,755) | ÷ | 36,557,279) | = | 0.14 | 0.14 | × | 2.95% × (1 – 21.00%) | = | 0.32% | ||
| Operating lease liability4 | 218,449) | 218,449) | ÷ | 36,557,279) | = | 0.01 | 0.01 | × | 3.80% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 36,557,279) | 1.00 | 8.73% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 33,583,010) | 33,583,010) | ÷ | 38,198,067) | = | 0.88 | 0.88 | × | 9.79% | = | 8.60% | ||
| Debt3 | 4,401,685) | 4,401,685) | ÷ | 38,198,067) | = | 0.12 | 0.12 | × | 3.33% × (1 – 21.00%) | = | 0.30% | ||
| Operating lease liability4 | 213,372) | 213,372) | ÷ | 38,198,067) | = | 0.01 | 0.01 | × | 3.80% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 38,198,067) | 1.00 | 8.92% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,983,052) | 22,983,052) | ÷ | 27,641,307) | = | 0.83 | 0.83 | × | 9.79% | = | 8.14% | ||
| Debt3 | 4,432,193) | 4,432,193) | ÷ | 27,641,307) | = | 0.16 | 0.16 | × | 3.23% × (1 – 21.00%) | = | 0.41% | ||
| Operating lease liability4 | 226,062) | 226,062) | ÷ | 27,641,307) | = | 0.01 | 0.01 | × | 3.23% × (1 – 21.00%) | = | 0.02% | ||
| Total: | 27,641,307) | 1.00 | 8.57% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in thousands
2 Equity. See details »
3 Debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Hershey Co., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 1,019,994) | 844,910) | 776,042) | 645,408) | 742,228) | |
| Invested capital2 | 8,759,552) | 8,529,610) | 7,520,057) | 6,702,394) | 6,545,593) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 11.64% | 9.91% | 10.32% | 9.63% | 11.34% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Coca-Cola Co. | 3.86% | 5.39% | — | — | — | |
| Mondelēz International Inc. | -3.75% | -0.75% | — | — | — | |
| PepsiCo Inc. | 4.37% | 4.92% | — | — | — | |
| Philip Morris International Inc. | 11.92% | 26.26% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,019,994 ÷ 8,759,552 = 11.64%
4 Click competitor name to see calculations.
The financial trajectory between 2018 and 2022 indicates a strengthening of economic value creation, characterized by a significant expansion in economic profit and a steady increase in the capital base.
- Economic Profit Trends
- Economic profit experienced an initial decline in 2019, falling to 645,408 thousand US dollars from 742,228 thousand US dollars in 2018. However, a sustained recovery followed, with values rising consistently each year to reach 1,019,994 thousand US dollars by the end of 2022. This represents a substantial increase in absolute value creation over the five-year period.
- Invested Capital Growth
- Invested capital demonstrated a continuous upward trend throughout the observed period. The capital base grew from 6,545,593 thousand US dollars in 2018 to 8,759,552 thousand US dollars in 2022. This steady expansion indicates a consistent increase in the total resources deployed to generate returns.
- Economic Spread Ratio Analysis
- The economic spread ratio exhibited volatility, mirroring the fluctuations in economic profit. After decreasing to 9.63% in 2019, the ratio trended generally upward, despite a marginal contraction to 9.91% in 2021. The ratio reached its peak in 2022 at 11.64%, signaling that the return on invested capital exceeded the cost of capital at its highest efficiency level within the analyzed timeframe.
The correlation between the growth in invested capital and the eventual surge in economic profit suggests that the capital deployments between 2019 and 2021 successfully translated into higher economic returns by 2022, as evidenced by the peak in the economic spread ratio.
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Economic Profit Margin
Hershey Co., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Economic profit1 | 1,019,994) | 844,910) | 776,042) | 645,408) | 742,228) | |
| Net sales | 10,419,294) | 8,971,337) | 8,149,719) | 7,986,252) | 7,791,069) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 9.79% | 9.42% | 9.52% | 8.08% | 9.53% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Coca-Cola Co. | 7.17% | 11.19% | — | — | — | |
| Mondelēz International Inc. | -7.61% | -1.60% | — | — | — | |
| PepsiCo Inc. | 3.51% | 4.33% | — | — | — | |
| Philip Morris International Inc. | 17.78% | 24.38% | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × 1,019,994 ÷ 10,419,294 = 9.79%
3 Click competitor name to see calculations.
Analysis of the economic value added metrics reveals a general upward trajectory in value creation from 2018 through 2022. While a temporary contraction in economic profit occurred in 2019, the subsequent period is characterized by steady growth in both nominal economic profit and total revenue, indicating an improvement in the ability to generate returns above the cost of capital.
- Economic Profit Trends
- Absolute economic profit increased from $742.2 million in 2018 to $1.02 billion in 2022. A notable decline was observed in 2019, where profit dropped to $645.4 million, before recovering in 2020 and experiencing accelerated growth through 2022.
- Net Sales Performance
- Net sales exhibited continuous year-over-year growth throughout the observed period. Revenue rose from approximately $7.79 billion in 2018 to over $10.42 billion by the end of 2022, showing a consistent expansion of the top line.
- Economic Profit Margin Stability
- The economic profit margin remained relatively stable, fluctuating within a narrow range. After a dip to 8.08% in 2019, the margin recovered to 9.52% in 2020 and 9.42% in 2021, eventually reaching a five-year peak of 9.79% in 2022. This suggests that the increase in economic profit is closely aligned with the growth in net sales, maintaining a consistent efficiency in value generation.
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